Vertical Restraints And Distribution Agreements, 30.09.2009: The 30 % Market Share Threshold

The 30 % market share threshold Alexandre Vandencasteele

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Market share thresholds – The changes •

Draft Article 3 : 1. Subject to paragraph 2 of this Article, the Market share threshold The exemption provided for in Article 2 shall apply on condition that the market share held by each of the undertakings party to the supplieragreement does not exceed 30 % on any of the relevant market on which it sells the contract goods or services. 2. In the case of vertical agreements containing exclusive supply obligations, the exemption provided for in Article 2 shall apply on condition that the market share heldmarkets affected by the buyer does not exceed 30 % of the relevant market on which it purchases the contract goods or servicesagreement.

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Market share of the supplier (or of the buyer in exclusive supply cases) v. market share of the parties to the agreement

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Market on which the supplier sells (the buyer purchases) v. any of the markets affected by the agreement

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Single branding Not to be exempted Seller : 25 %

Foreclosure effect on other sellers ?

Buyer : 40 %

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Single branding Is the not to be exempted scenario likely ? Is it self correcting ? Manufacturer : 25 %

Component manufacturer : 25 %

Distributor : 40 %

Manufacturer : 40 %

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Single branding Is the issue market definition? Manufacturer : 25 % Market A

Component manufacturer : 25 % Market A

Distributor : 40 % Market B

Manufacturer : 40 % Market B

Draft Article 3 : "on any of the markets affected by the agreement" Para. 83 of the draft Guidelines on Vertical Restraints : "Under Article 3 of the Block Exemption Regulation, it is the market share of both the supplier and the buyer that are decisive for the application of the block exemption. Both the market share of the supplier, on the market where it sells the contract products to the buyer, and the market share of the buyer, on the market(s) where it (re)sells the contract products, may not exceed 30 % in order to be covered by the Block Exemption Regulation." ABU DHABI BRUSSELS DUBAI FRANKFURT HONG KONG LONDON MADRID MILAN MUNICH NEW DELHI NEW YORK PARIS SINGAPORE STOCKHOLM TOKYO WASHINGTON DC

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Single branding Market definition and distributors Manufacturer : 25 % Wholesaler : 25 % Retailer : 40 % Franchise : 35 %

Product Product Product Product

A A A A

Worldwide/National National/Regional Regional/Local Local

Para. 85 of the draft Guidelines on product market : "(…) A Distributor, as reseller, cannot ignore the preferences of final consumers when he purchases final goods (…)" Para. 85 of the draft Guidelines on geographic market : "(…) As distributors are professional buyers, the geographic wholesale market is usually wider than the retail market, where the product is resold to final consumers. Often, this will lead to the definition of national or wider wholesale markets."

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Single branding Market definition and components Manufacturer : 25 %

Product A

Manufacturer : 40 %

Product B ?

Para. 85 of the draft Guidelines on Vertical Restraints : "(…) When the supplied product is used as an input to produce other products and is generally not recognisable in the final product, the product market is normally defined by the direct buyers' preferences. (…)"

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Exclusive supply Not to be exempted Seller : 35 % Buyer : 25 %

Foreclosure effect on other buyers?

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Exclusive supply Is the not to be exempted scenario likely ? Is it self correcting ? Manufacturer : 35 %

Component manufacturer : 35 %

Distributor : 25 %

Manufacturer : 25 %

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Conclusion • Why fix what works ?

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